Business Strategy Explained

What is Strategy?

• Planning is the foundation for decisions, goals, and future navigation
• Planning involves setting a vision and path by addressing key questions
• Effective planning helps resource allocation and aligns decisions with organizational goals
• Planning aligns the organization toward goals and provides clarity in decision-making
• Netflix shifted from DVD rentals to streaming due to effective planning anticipating long-term success

Achieving Superior Performance: The Role of Strategic Planning

• The ultimate business goal is superior performance which means excelling beyond competitors
• Maximizing shareholder value is at the heart of superior performance
• Balancing short-term profits with long-term growth can be challenging
• Apple invests heavily in R&D for long-term shareholder value via innovative products
• Amazon reinvested early profits to build infrastructure and diversify revenue streams for long-term dominance

The Strategy-Making Process: From Formulation to Implementation

• This is a detailed process involving analysis, decision-making, and execution
• Strategy-making begins with formulation, considering internal capabilities and external factors
• The formulated strategy aligns with company goals and anticipates future opportunities
• Implementation ensues, translating plans into actionable steps
• Starbucks refined its strategy by adapting to consumer preferences with international expansion and customized product offerings

Competitive Advantage: Gaining the Upper Hand

• Competitive advantage helps outperform competitors by delivering greater value
• Competitive advantage allows businesses to command higher prices and increase profitability
• Advantages arise from unique resources, skilled personnel, and strategic location
• Tesla gained an edge in the electric vehicle market through innovative technology

Business Models: Creating Value

• A business model creates and delivers value to customers and defines profitability and growth
• Netflix uses a subscription-based model providing streaming content
• Amazon integrates e-commerce with cloud computing, subscriptions, and advertising

Strategic Planning and Resource Allocation

• Strategic planning is an ongoing cycle of adaptation, review, and adjustment
• Strategic plans can span five years or more
• Strategic plans should be reviewed and adjusted to reflect the current business environment
• Resource allocation implements the strategic plan
• IBM shifted from hardware to software and services using strategic shift

Types of Plans and General Principles

• Plans enable companies to reach goals effectively
• Successful plans require coordination and alignment across units and departments
• Plans are classified into long-term, intermediate-term, and short-term
• Each plan has a unique purpose at different organizational levels

Strategic Plans (Long-Term Plans)

• Strategic planning focuses on the long-term vision and direction
• Boards and top management determine strategic plans
• Input from all employee levels is vital to enhance the plan's quality
• Includes both internal and external factors
• Tesla is revolutionizing the automotive industry by using electric vehicles

Considering Capacity and Capital Resources

• Capacity is a company's ability to meet demand
• Capital resources include physical assets, buildings and technologies
• Capital budgeting involves planning investments in new facilities or equipment
• Amazon invests in new logistics infrastructure to scale operations
• Strategic plans are directional, outlining strategies but not specific steps

Intermediate and Short-Term Plans

• Tactical plans translate strategic plans into actionable components, managed by middle managers
• Plans generally range from one to three years, based on industry and company needs
• Tactical planning is about implementation
• General Electric develops tactical plans to support strategic goals, such as investments in R&D and government partnerships

Operational Plans

• Operational plans are developed from tactical plans, focusing on daily activities
• These plans achieve the company's operational goals, typically developed by lower-level managers
• Operational plans are highly specific and often involve setting budgets and managing resources
• Walmart may develop operational plans to increase online sales and ensure product listings get updated regularly

Budgets and Capital Expenditures

• Capital expenditure budgets are essential for long-term planning
• CapEx is a separate kind of budget and involves major investments in assets
• Often planned over several years
• Capital investments can significantly affect a company’s capacity to produce goods or services
• Tesla's investment in Gigafactories allows them to scale the production of batteries

The Strategic Planning and Management Process

• The strategic planning and management process is an ongoing cycle of setting, implementing, and evaluating goals
• Strategic planning is aligned with the company's mission, vision, values, and goals
• It begins with defining the company's mission and vision to understand "What is our purpose?" and "Where do we want to go?"
• It involves scanning internal and external environments to understand the company's position and identify the factors that could influence its success
• Companies must understand their competitive landscape, and assess strengths and weaknesses
• Then they set objectives and create a strategic plan as a roadmap
• Following is to develop policies, create organizational structure, and begin implementation
• Allocation of resources is addressed via creating an operational budget
• Strategic plans must be monitored via evaluation of performance

For-Profit vs. Non-Profit Organizations

• Google revises its strategy based on team and market feedback and expands based on that
• Strategic planning is essential in both for-profit and non-profit settings but with different driving forces
• For-profits want to maximize shareholder value and non-profits exist to serve a cause
• Non-profits must ensure that inflows, like donations, are greater that outflows, like expenses
• The American Red Cross must develop strategic plans to maximize fundraising efforts
• For non-profits, their mission takes precedence over profitability

Large, Medium, and Small Companies

• Formalized planning processes are common in large companies
• Formal processes are due to greater organizational complexity
• Large companies also plan for longer periods
• Smaller companies have fewer layers of bureaucracy for faster implementation
• Strategic flexibility leads to quicker changes, but they may also plan for shorter periods

The Finance Team

• The finance team provides essential support for strategic planning and management
• They guide strategic decisions and ensure all data provides the required insights
• Key responsibilities of the finance team include:
  • Supporting situational analysis to guide strategic decision-making
  • Managing cash flows and ensuring liquidity
  • Analyzing new opportunities
  • Risk management

Analytical Planning Tools and Frameworks

• Tools assist a company’s planning and assessment processes
• Tools on the CSCA exam include:
• SWOT analysis,
• Porter’s Five Forces,
• Situational analysis,
• PESTEL and STEEP analysis,
• GAP analysis,
• Competitive analysis,
• Contingency planning and Scenario planning,
• BCG Growth-Share Matrix, and
• GE-McKinsey Matrix (GE Business Screen)

SWOT Analysis

• Enable companies to adapt in the landscape by analyzing company’s strengths, weaknesses, threats and opportunities
• SWOT analysis helps align the organization to succeed, by leveraging resources and capabilities
• Helps in selecting the strategies, that can leverage and prepare the company for any threats
• The strategy must be consistent with the goals of the organization

Four Pillars of SWOT

• Strengths are internal capabilities giving a competitive edge
• It also improves relations and financial resources
• Weaknesses are limiting factors for the company and it’s performance
• These include poor customer service and limited resources
• Opportunities help the company to exploit the advantages based on emerging markets and trends
• Threats potentially jeopardize company’s success with challenges such as, increased competition

Strategic Alternatives and Decision-Making

• Completing SWOT analysis helps generate strategic alternatives
• This is by matching company’s strengths to opportunities while addressing weaknesses
• Business-level strategy is focused on how position themselves in the market
• Corporate-level strategy is broad to maximize profitability for growth
• Functional level strategy helps optimize aspects of the business

Aligning and Integrating Strategies

• Strategies from a SWOT analysis should be compatible with each other.
• Functional level strategy must align with business and corporate-level strategy
• If the company decides a cost leadership, then function level must reduce costs and improve efficiency.

Business Models and SWOT

• Business model represents the company’s approach to profitability and growth
• Business models help the company adapt to changing market conditions
• SWOT analysis enables management to make smart decisions
• SWOT anaylsis also helps implement effective and realistic strategies
• SWOT analysis is an imperative part of the strategic process, as it leverages identifying opportunities and developing strategies